SCYX - Scynexis: Licensing Deal With GSK Upgrading To A Hold Rating From A Sell

2023-03-31 11:47:43 ET

Summary

• GSK and SCYNEXIS signed an exclusive licensing agreement for Brexafemme, an FDA-approved medicine for vulvovaginal candidiasis.
• GSK will pay SCYNEXIS $90 million upfront, with additional milestone payments and royalties. SCYNEXIS retains rights to other assets derived from Brexafemme.
• The agreement de-risks potential commercialization risk, and in addition provides a cash runway cushion. Therefore, we upgrade to a hold rating from a sell rating.

We covered SCYNEXIS ( SCYX ) as recently as January , and have held a "Sell" rating since last summer, where we deemed the stock "uninvestible". The recent announced licensing agreement with GSK ( GSK ) has prompted us to review our outlook.

The Deal with GSK

On March 30th, SCYNEXIS announced that GSK and SCYNEXIS have entered into an exclusive licensing agreement for the commercialization of Brexafemme, an FDA-approved medicine for vulvovaginal candidiasis. GSK will pay SCYNEXIS $90 million upfront, with additional performance-based milestone payments and royalties. SCYNEXIS will retain rights to other assets derived from Brexafemme. The deal makes sense for GSK, as Brexafemme complements GSK's portfolio of infectious disease medicines. Of note, GSK's infectious disease portfolios consist of a range of medicines and vaccines for the prevention and treatment of various infectious diseases. The portfolio includes products for HIV, respiratory syncytial virus (RSV), shingles, hepatitis B, and meningitis, among others. GSK's portfolio also includes antibiotics for the treatment of bacterial infections, such as gepotidacin and tebipenem. In addition, GSK has a pipeline of potential treatments for infectious diseases, including COVID-19. Infectious diseases and HIV represent around two-thirds of GSK's pipeline, reflecting the company's commitment to addressing global health challenges.

Risks

1. Clinical Trial Risk: SCYNEXIS is currently in the late-stage clinical trial phase for its antifungal drug candidates. There is a risk that the trials may not meet the desired endpoints or may have safety concerns, which could lead to delays or failure to obtain regulatory approval, affecting the company's future revenue streams.

2. Competition Risk: SCYNEXIS operates in a highly competitive market, with other established players like Pfizer, Merck, and Novartis, as well as small biotech startups. The competition could affect the company's ability to generate revenue or acquire new customers.

3. Regulatory Risk: The regulatory environment for pharmaceuticals is unpredictable and subject to change. Changes in government regulations, including pricing and reimbursement policies, could adversely affect SCYNEXIS's profitability.

4. Funding Risk: As a clinical-stage company, SCYNEXIS relies heavily on external funding to finance its operations, research, and development. The company may face difficulties in raising additional capital from investors or securing grants or loans, which could limit its ability to pursue its growth strategy or even result in bankruptcy.

Conclusion

On March 30th, SCYX signed a licensing-in agreement with GSK with a sizeable $90M upfront, which will provide a comfortable cash runway cushion to the company. Furthermore, the agreement de-risks the potential commercialization risk that we have repeatedly pointed out in our previous analysis. Therefore, we upgrade SCYX to a hold rating from a sell rating. As investors await the approval of rIFI indication for SCYNEXIS' antifungal drug, we recommend they adopt a cautious approach and monitor the sales ramp closely. We anticipate significant catalysts in the hospital setting by 2024-2025 at the earliest. In the short term, despite the additional RVVC indication, we do not expect it to have a significant impact on the sales ramp trajectory. This, coupled with the warrant overhang , makes it challenging to justify investing in SCYX. Additionally, the unexpected black- boxed warning raises concerns about the company's commercial success in the future.

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